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Consolidated Edison Inc. (ED) Stock Analysis Pollie Style – 2018

Stock Analysis Pollie-style – Consolidated Edison – 2018.

One of my goals for 2018 for my Vrijheid Fonds, is to diversify more (for all my goals for 2018, read my Goals 2018 post). Diversification is what saves my Vrijheid Fonds when the markets will hit a financial storm. I want to position myself appropriately to protect my Vrijheid Fonds and decrease my risk factor. In order to do this, I want to diversify more by industry and sector. And furthermore I will look for stocks with a low Beta.

If we take a look at my Vrijheid Fonds, you can see that I’m low in the Utilities sector (just 2%) Therefore I’m looking tot increase my exposure in this sector. The only company that I own in this sector is Southern Company (SO), which is going to a rough time lately. So I turned my eye to a different Dividend Aristocrat. The post about their Foundation Stocks from the Dividend Diplomats inspired me and made me dive deeper into Consolidated Edison.

 

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This analysis is on Consolidated Edison INc. (ED).

Company

From google finance: Consolidated Edison, Inc. (Con Edison) is a holding company, which owns Consolidated Edison Company of New York, Inc. (CECONY), which delivers electricity, natural gas and steam to customers in New York City and Westchester County; Orange and Rockland Utilities, Inc. (O&R) (together with CECONY referred to as the Utilities), which delivers electricity and natural gas to customers primarily located in southeastern New York, and northern New Jersey and northeastern Pennsylvania, and competitive energy businesses, which provide retail and wholesale electricity supply and energy services. CECONY’s business operations are its regulated electric, gas and steam delivery businesses. O&R’s business operations are its regulated electric and gas delivery businesses.

Can I explain this to a 10-year old? What Does This Company Do?
Consolidated Edison, commonly known, as Con Edison of Con Ed is a company that provides electricity, gas and steam to factories and houses.

 

Pollie-code Analysis

Dividend Aristocrat: ED is paying Dividend for more than 100 years in a row! And Richard Berger on Seeking Alpha called it a Dividend Zombie. It also raised their dividend for more than 40 years in a row. Its number 53 on the CCC-list from David Fish! And is a 2 star stock on Morningstar.com. This looks like a fine and solid investment. That’s a Pass!

Dividend Yield > 2.5%: The dividend Yield of ED is 3.81%. This is above the industry average of 3.44%. And almost spot on the 5 years average (3.85%). The Yield is above the requirements of the Pollie-Code, and therefore it passed the second Pollie-code.

Dividend payout <70%: The dividend payout is roughly 52%. This is below the maximum ratio. This also means that they can keep those dividend increases coming for a long time. And that is what we are looking for! If we take a look at there history we can see that they managed to lower their payout ratio the last decade. And this is good news. So also passed for this point.

DGR 1 year > 0%:  The dividend growth rate for 1, 3, 5 and 10 years are 3.0, 3.1, 2.7 and 1.8. With a 3-years average over 3.1%. This is not that much, and is a little bit disappointed. But is above the requirements of the Pollie-code, so it is a pass.

P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. ED has a current P/E ratio is 15.0. And is lower than their 5 years average (17.27). It is below the industry average of 20.3%. This metric is on the requirements of the Pollie-code and therefore this is a pass.

EPS > 0:  The EPS is 5.04. So ED also passed the sixth Pollie-Code

ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.  The current ROE is 10.3%. Another pass.

Market Cap. > 100M: No problem at this point. ED is one of the largest investor-owned energy companies in the United States. The Market cap. Is more than $ 23.840 B. You guested is already: Another pass.

Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 6.5. This is therefore a fail on the Pollie-code.

Stock price 52wk high-25%: The 52 wk. high and low are: 88.03 and 71.12. This means that ED will be in my buying zone when the stock price is below 83.80 ((88.03-71.12)*0,75 + 71.12). At this moment ED is trading for $77.18. Therefore it is a pass on the Pollie-code.

Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for ED is 0.06.

Debt/Equity ratio: The Debt/Equity ratio of ED is around 1.11. This is a little bit high. I like a Debt/Equity ratio lower than 1. If we look at Consolidated Edison we see that it is a highly levered company given that total debt exceeds equity. This is not unusual for large-caps because debt tends to be less expensive than equity because interest payments are tax-deductible. So lets see if ED can cover the interest. And this is the case; actually Earning (EBIT) covers the net interest at least three times. So no worries here for Pollie 🙂

 

Conclusion

When I look at the analysis, ED passed 9 out of 10 from the Pollie-code! The Pollie-code only failed at the Chowder rule.

If we take at the Utility sector, it is fair to say that ED is a very reliable utility company. And that is what I look for as a DGI. Consolidated Edison’s history goes back more than 130 years and they have 40 straight years of dividend increases.

That makes Consolidated Edison in my opinion a strong and reliable stock investment! And it will be a very nice addition to my portfolio. It is a stock with a high yield and as a utility stock it is safe. I certainly put ED on my watch list for my Vrijheid Fonds. And probably take action in the near future.

What are you – the readers, thoughts on Consolidated Edison? Is it a buy? Do you own it?

Please comment on my analysis and thanks for stopping by!

Cheers,

Pollie.

 

Disclaimer: I’m not a registered investment adviser, investment professional, brokerage firm or investment company. Readers are advised that information on the website is issued solely for information purposes and not to be construed as an offer or recommendation to buy, hold, or sell any securities. All information, opinions, and analyses included are based on sources believed to be reliable, but no representation or warranty is made concerning accuracy, correctness, timeliness, or appropriateness. Please consult with an investment professional before investing any of your money.

 

 

 

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7 thoughts on “Consolidated Edison Inc. (ED) Stock Analysis Pollie Style – 2018

  1. KeithX

    Being sufficiently diversified is important, Pollie, so adding a second utility makes a lot of sense. Our portfolio has 3 utilities (SO, D, and WEC). D was doing great when I added it a couple of years ago, but the offer to buy SCG has put pressure on the stock. I used the weakness to add shares, continuing to buy as the price went down until D was over weight as a percentage of the portfolio. The stock has recovered quite a bit recently and I used the strength to trim shares purchased approximately 10% lower.

    And ED is a fine utility. Not a bad choice at all. 🙂

    1. Pollie Post author

      Thanks! With a weight of approximately 3.7% The utility sector is still a bit underweighted in my Vrijheid Fonds. So when an opportunity arise…. 😁

  2. DividendSolutions

    Hi Pollie,

    good analysis – tx for sharing. I have ConEd on my watchlist and think about initiating a new portfolio position. My utility sector in my Lonestar Fund is not overweighted at all. I own shares of Southern Co and RedElectrica, but adding ED wouldn’t hurt.
    What i like most is the combination of a yield north of 3,5% and that their business model is rock solid. Like you said: if the storm hits us, it’s good to have stocks like ED in the portfolio.

    I recently purchased some more shares of W.P. Carey. I think that the REIT sector is not hit that hard by all these tariff threats…

    Cheers,
    DividendSolutions

  3. Jung in Rente

    Hey Pollie,

    Thank you for your great analysis. ED hasn’t made it on my watchlist yet. However, as we only hold one position in the energy sector so far (SO), it definitely wouldn’t hurt to add another company to our portfolio. I guess ED would then be one of my favorites.

    – David

    1. Pollie Post author

      Thanks. This was the same for me. I only had SO as well.
      And in my search I say a couple of great companies. But ED just got stock in the back of my mind. And when I did my analysis, I knew What my next actin was 😀

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